LRBAs at Sea and in the (safe) Harbour
The ATO issued on 6 April 2016 what it termed “practical compliance guidelines” in relation to limited recourse borrowing arrangements (LRBAs). These guidelines are referred to as “safe harbour” guidelines.
Six Important Points
Six important points need to be made in relation to the guidelines.
What are the parameters of the safe harbour?
The ATO has issued two sets of parameters: one for real estate investments and the other for listed securities. No parameters have been issued for LRBAs which involve other types of assets such as private company shares and units in private unit trusts.
What to do?
Trustees (and their SMSF advisers) must do two things. The first is to determine whether their LRBA is a commercial or non-commercial arrangement. The second (assuming that the LRBA is non-commercial) is to identify any offending elements of the arrangement and to determine what rectification actions should and can be undertaken.
Other Points – LVRs, loan terms & personal guarantees
The maximum dollar value for the loan is determined by applying 70% (or 50% in the case of marketable securities) to the market value of the property as at 1 July 2015 (or if the arrangement was established after 1 July 2015, then the market value of the property at the time the arrangement was established is to be used).
Media enquiries:
Peter Townsend
Principal
Townsends Business & Corporate Lawyers
t: (02) 8296-6201
m: 0419 448 844
peter[at]townsendslaw.com.au